Thursday, November 4, 2010

Does Government Intervention Help or Hurt in the Long Run?

Has the United States abandoned the market mechanism?

According to John Allison, chairman of BB&T, the financial crisis of 2008-09 the product of market distortion created by government (not market failure) and the cure may be worse long-term than the disease. He is also one of the few people who could see taking on inordinate risks would mean his own company's undoing. Allison believes that collusion between banks and government is bad medicine. While other banks continue to wallow in TARP money or have disappeared, BB&T is completely solvent today. He has taken his message of reasoned entrepreneurship, long-term wealth creation, prudence and market fundamentals to the people.

Allison asks us to keep in mind short term fixes almost always lead to perverse effects over time. We are only now reaping what we sewed through the loose monetary policy and subsidized home ownership of more than thirty years. Allison thinks we are also setting ourselves up for failure with massive unfunded liabilities in Social Security and healthcare entitlements.

He believes that only a renewed commitment to the profit and loss system will help us right our economic ship. We should heed the age-old lesson that long-term value creation cannot be achieved through short cuts.

Do you agree with Allison's point of view?


  1. He has a lot of great points but also some I disagree with. On market value accounting it is worth remembering that allowing the S&L industry to pretend it was solvent when it was significantly underwater ended up costing the American taxpayer dearly in the S&L crisis. I know people who would love to pretend their house is worth what it was when they bought it 3 years ago. Would Allison's bank be willing to lend on the basis of that valuation?

  2. I don't agree with everything he say either, but I am pretty sure BB&T was one of the banks that didn't want or need TARP and got pretty bent out of shape when they were forced to take it. Allison's bank has been one of the more conservative of the big banks, and I am sure they are very cautious about lending and asset valuations.